As wildfires rage across northern California, homeowners rightly fear losing fire insurance and being forced to rely on the state’s insurer of last resort policies, known as the California FAIR Plan. In these situations, they are faced with dramatic increases in their premiums from a state-created system that offers barebone coverage.
To alleviate their problems, Insurance Commissioner Ricardo Lara last week banned insurance companies from not renewing fire insurance policies for homeowners living near the state’s two largest wildfires. This policy can be understood as a palliative, but the Commissioner is increasingly relying on this emergency approach.
“This is the third year in a row that Lara has enforced the year-long ban on non-renewals,” the Sacramento Bee reported, noting that “last year it issued a moratorium covering 2.4 million policymakers “. This is a politically popular move, but one that jeopardizes the long-term health of the insurance industry and discourages insurers from writing new policies.
Insurers must manage their risks and major forest fires can threaten the solvency of these companies. Good policy is to encourage insurers to buy more policies, but Lara opposed legislation (Assembly Bill 2167) by Assembly Member Tom Daly, D-Anaheim, which allegedly encouraged insurers to voluntarily offer policies. policies in high-risk areas by offering higher exchange rates. to ensure coverage.
This legislation died last year, but its supporters have recognized the need to create market incentives within the confines of Proposition 103. Approved by voters in 1988, it gives the commissioner the power to approve increases in the market. rate and mandate rate cuts. This discourages companies from offering riskier policies by limiting their ability to price them to reflect their risk.
Fortunately, the legislature this year shelved Assembly Bill 1522, which would have prohibited “an insurer from canceling or refusing to renew a residential property insurance or commercial insurance policy by based solely on the fact that the insured property is located in a high risk forest fire. Region. “However, the commissioner implements this idea by decree.
The state’s wildfire insurance crisis has worsened, but the solution remains the same. The legislature must adopt the market incentives that stimulate competition.